Trading the Non Farm Payrolls

By : Peter Jones
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News releases occur many times during the month. They are released by various economic departments around the world. These releases reflect the economic reality from a certain country during the last month. They affect economic and fiscal policy as they show what is happening to that economy over the previous month.

What is certain, when these economic statistics are released they create a lot of volatility in the underlying forex market place. For instance, economists and analysts are surveyed prior to these releases and their collective opinions for the basis of the market expectation for that release.

The most important economic indicator released every month is the Non Farm Payrolls report. Released by the United States Bureau of Labor Statistics. This indicator is important as it's a gauge to the health of the economy. A Poor report means, less consumer confidence, which mean less spending, which means lower interest rates. This is bad for the USD dollar. Alternatively, a strong Payrolls report means the opposite.

In terms of the forex market, trading these releases can be very profitable. But has huge risks. You can position yourself (buy or sell currency) prior to the release on the hope you guess correctly. However, if you are wrong the losses you will absorb will be catastrophic to your trading account.

There are better ways to trade the news. One way is to wait for the release of the economic number, and place your trade once the initial volatility has occurred. The volatility is a result of institutions deciding where to place their long term orders and for the market to find an equilibrium price.

A trend usually forms after the initial volatility. If the number was much unexpected you may see a continuation, or reverse of a trend.

To be successful in forex trading depends on risk versus reward. If you can place a trade within the direction of the underlying trend you will, over the long term make money. However, there are many pitfalls involved in trading, and these hazards can be difficult to overcome for a new trader.

Forex trading is more a science than an art, but if you can define risk, and place your trade where the downside to your trade is small, you will, overall have a profitable horizon.

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